On Friday, UBS has increased the price target for South32 (OTC:) Limited (S32:AU) (OTC: SHTLF) shares to AUD4.15 from the previous AUD3.90, while keeping a Buy rating on the stock. The revision follows UBS’ updated higher forecasts for silver prices, as well as the recent uptick in manganese and alumina prices.
The analyst at UBS noted significant enhancements to South32’s earnings per share (EPS) projections, with an increase ranging from 13% to 34% for the fiscal years 2024 through 2026.
The new price target reflects these adjustments and the positive momentum in the commodities market that South32 operates in. According to the firm, if current spot prices are sustained, South32’s net present value (NPV) could see an increase of over 60% compared to the base case.
The report highlighted that the current prices of commodities in South32’s portfolio are now significantly contributing to the company’s earnings and free cash flow (FCF) potential.
UBS also indicated that the possibility of South32 reinstating its share buyback program after the financial results in the first half of fiscal year 2024 should not be discounted, especially in light of the anticipated financial close of the Hermosa project’s divestment and the expected US$1.05 billion upfront payment upon completion.
The anticipated developments, as mentioned by UBS, could provide South32 with greater flexibility regarding the funding of capital expenditures for projects like Taylor and the fourth grinding line at Sierra Gorda. This could potentially be achieved with less reliance on the company’s balance sheet, given the stronger earnings outlook.
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